Truckload linehaul spot rate drop surges under pressure from surging diesel prices

FreightWaves’ Future of Supply Chain Summit is being held this week in Northwest Arkansas, the epicenter of North American supply chains. If you are able to attend, you are welcome to tune into our free live stream that will carry all the content from the main stage. The event kicks off Monday at 9 am ET.

At the event, we will be introducing several new data products, including a new national index that is assessed and published every day (NTID.USA). This is based on the FreightWaves SONAR Trusted Rate Assessment Consortium (TRAC) data and published earlier in the day’s reports. All assessed rate reports require consistent booking of booking dates to maintain that data.

A daily business day index, which eliminates weekend reports; and a 7-day rolling average index that tracks the prior seven days (NTI.USA).

All of these indices provide a high-frequency look at the freight market since they are updated and published and available for SONAR subscribers overnight. In addition, we are planning to announce an expanded data relationship with Truckstop.com, so SONAR customers will have access to deeper market intelligence and rate information.

From this daily index, we are also introducing a linehaul-only 7-day moving average spot index (NTIL.USA), which provides an estimated spot linehaul rate, net of fuel. This eliminates estimated diesel fuel costs from an index of 6.5 miles per gallon (MPG). This is calculated by taking the FreightWaves National Truckload Index 7-day rolling average and subtracting the estimated daily truckstop retail diesel (DTS.USA) and dividing by 6.5 (MPG).

FreightWaves has a daily national truck stop retail diesel index for years, but since then it has been tracked with a DOE weekly average (DOE.USA) that has a great deal of interest in the daily data. But with retail prices so volatile these days, daily updated truckstop retail diesel has never been more relevant.

By removing retail diesel from the index, SONAR subscribers can see how spot market carriers are performing in the market. With diesel prices experiencing unprecedented price acceleration, there has never been a more important time to track diesel and linehaul separately.

(Note: Many fuel surcharge tables use a diesel cost base of $ 1.20- $ 2.00 / gallon. We decided against this because we want a cashier for net cash flow. At 6.5 MPG per gallon, you can add $ 0.185 / mile or $ 2.00 / gallon you can add $ 0.307 / mile to the linehaul rate. fuel.)

From April 30 to May 6th, trucking linehaul-only spot rates (7-day moving average) dropped $ 0.09, from $ 2.17 to $ 2.08, making it one of the largest weekly drops in linehaul rates net fuel peaked on January 14, 2022.

This is the biggest one-week drop in the index and at a pace that is nearly twice as fast as the average set on January 14th at $ 3.01 / mile. In the 113 days since the peak, the spot linehaul-only index has dropped $ .93. That’s a drop of $ 0.008 / mile per day. This past week, the drop was $ .0128 / mile per day, more than a penny a mile per day.

Diesel fuel increased $ 0.36 / gallon, from $ 5.19 / gallon to $ 5.55 / gallon, during the same seven-period period April 30 and May 6, which translates to an increase of $ 0.055 / gallon. What is the cost limit for a carrier? Gross spot rates are falling at the same time as this.

The rapidload deterioration in the truckload spot has caught almost everyone by surprise, even experts at FreightWaves. When we published our article on March 31, 2022, about an imminent freight recession, linehaul-only spot rates were at $ 2.42 / mile. They have dropped $ 0.34 / mile – or 14% in the 37 days since that piece was published.

The rate of decline prior to the article was $ .0078 / mile per day and has since accelerated to $ .0091 / mile per day.

This is what’s happening in the backdrop of trucking companies for a strong season. The outdoor-related home and gardening goods, along with the spring and summer seasons, are in demand. We simply see it this year.

The last time we saw truckload spot linehaul rates on net was this low on February 14, 2021. In February 2021, mid-size carrier operating ratios were 100+, according to TCA data. This was the only month since summer 2020 that truckload ORs were over 100.

(Blue is the truckload carriers for operating ratio [OPRAT.VCF] mostly mid-sized van operators and green represents the National Truckload Index Linehaul only [NTIL.USA]).

While most of the freight hauled by mid-market carriers in the contract market, there is an inverse relationship between trucking spot rates and operating ratios. With carrier profitability so marginal, a big downward swing in spot rates can mean the difference between a profitable month and an unprofitable one.

It’s a quick turn-around and sudden rally in the truckload spot market. The SONAR outbound tender rejection index (OTRI), a measurement of the percentage of loads in the truckload contract market that has been rejected by truckload carriers. These demonstrates that the truckload contract market in which carriers are more willing to take on shippers pre-negotiated contracted rates.

Outbound tender rejections (OTRI.USA) are at 8.38%, down from 20.9% on January 14, 2022. It is likely that OTRI will continue to fall as long as possible. While tender rejections measure the contract market, the two markets are fungible and linked. As contracted carriers reject freight, a portion of that freight will be sent over the spot market. The less contracted freight that gets rejected, the less overflow contracted freight there is in the spot market.

The Last Time OTRI.USA was this low on June 14, 2020.

Truckload carriers (net of fuel) for operating expenses have increased by at least 7% since February 2021. This includes everything from driver wages, maintenance, insurance, operating staff, and equipment. This is creating additional headwinds in the market.

A great deal of financing in trucking is tied to floating interest rates, not fixed interest rates. Increasing financing costs will put trucking carriers on extra pressure. Truckload carriers have high exposure to spot rates and these levels at financial risk. If the pressure rises, it is going to squeeze spot carriers out of the market.

Data mentioned in the article is available exclusively on FreightWaves SONAR. If you are interested in learning more visit: sonar.freightwaves.com

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